CFO Exchange: Refocusing on Cost Drivers

This article appears in the December 2012 issue of HealthLeaders magazine.

In September 2012, HealthLeaders Media held its second annual CFO Exchange, bringing together 30 finance leaders from hospitals and health systems nationwide. The gathering in Kiawah Island, S.C., served as a unique opportunity for finance leaders to discuss with peers how their organizations are tackling some of the more demanding healthcare mandates in history while maintaining a grip on the purse strings.

Topping the agenda for these CFOs were discussions of how to:

Identify and reduce true costs

Develop strategies related to the financial shift from fee-for-service to population health

Capture financial data and use it to impact business analytics and processes

Optimize the revenue cycle

Recognize and respond to the impact of accountable care organizations on clinical and business integration

In this piece, we highlight event discussions in which nine CFOs take a deeper look at how they are assigning costs and driving them out at their respective organizations. Top of mind for these leaders is where they are turning to uncover costs and what to do about reducing them, and many feel the challenges are substantial. CFOs note they are grappling with declining Medicare reimbursements, value-based purchasing penalties, and a shift in inpatient volumes, while continuing to fund huge technology initiatives and expansion through physician acquisition or employment.

Healthcare reform is influencing everything from the hospital cost accounting systems to decision support and how physicians are compensated. CFOs are mindful that while getting at their true costs may be the only path that helps uncover the deep budgetary cuts needed for their respective organizations’ long-term survival, it is a complex and elusive undertaking.

Though consumer-directed healthcare is driving patients to become more participatory and decisive healthcare consumers, healthcare organizations are not much closer to knowing the actual cost of care. Healthcare organization boards of directors and executive leaders are now equally interested in having a more accurate picture of how much everything costs, and they’re calling on financial leaders to explain how costs are assigned for everything from pens to procedures. Our CFO panelists indicate they still haven’t mastered the nuances of this renewed pursuit of cost assignment and reduction, and they wonder how it will be influenced by bundled payments and population health.

Until these new models of care begin to bear financial fruit, many CFOs are taking a fresh look at all their expenses and adapting old approaches to reduce costs. They are looking at administrative centralization, repurposing real estate to optimize beds, growing market share through physician employment or acquisitions, developing alliances to bring about greater economies scale, physician preference and utilization, as well as all labor opportunities. Only time will tell if these efforts will drive out the 20% of costs most need in order to endure the healthcare transition from volume to value.

Reprint HLR1212-11

This article appears in the December 2012 issue of HealthLeaders magazine.